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Case Studies
Providing investment advice without thorough research and required registration
Donald is an account manager of a brokerage company and has been licensed by the Securities and Futures Commission (SFC) to deal in securities. Since his company is keen to develop the futures brokerage business and needs more manpower to handle client orders, Donald is instructed by his supervisor to apply for the related license. In fact, his company never considers whether Donald possesses the required qualifications and experience to be so licensed.
One day, a regular customer, Gordon, seeks Donald’s advice on index options. Although Donald has yet to obtain the license, he is confident of providing advice to Gordon because, in preparing for the license application, he obtains plenty of reference material from his colleagues in the futures brokerage division. He even accepts the order from Gordon to buy in index options contracts.
Case Analysis
Donald neither conducts the research himself nor considers his investment advice for Gordon in the light of his client’s objectives. He has contravened the *Codes of Conduct and also the Securities and Futures Ordinance because he provides investment advice on futures options to clients and accepts clients’ orders without being licensed. His reckless act can also cause damage to his company, which may be punished by the regulatory authorities since the company is responsible for the conduct of its employees. Moreover, the company violates the Codes of Conduct because it fails to ensure that Donald has the appropriate qualifications and experience to perform the new function.
*Remarks: Codes of Conduct refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the Code of Conduct for Corporate Finance Adviser and the Fund Manager Code of Conduct.